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Dow Surpasses 26k, Can This Rally Continue?

         1/17/2018

NYSE Floor

The stock markets have risen yet again, and the latest stock market index to surpass a historic milestone of growth is the Dow Jones Industrial Average.

On January 16th, 2018, the Dow Jones passed 26,000 points. Just 12 days earlier, it passed 25,000. These consecutive milestones were achieved faster than ever before, indicative of a very “bullish” or growing market. These market gains follow the passing of the US Government’s massive tax overhaul, which pledged to reduce the tax burden on corporations.

In addition to individual companies raising pay and offering one-time bonuses to their workers (Such as Walmart raising its minimum wage to $11/hour), the lessened taxes are also appearing to spur growth by offering favorable conditions for said companies to keep more of their money and spend it on growing their businesses. Stocks are affected as much by their productive value as by how much people believe they will rise or fall in the future, so it makes sense that the high consumer and investor optimism is in part fueling this rise.

Some sources, such as USA Today, believe this rapid growth is leading up to a fall, or at least a modest decline eventually. Stock markets rarely run upwards unfettered for more than a few years before starting to lose value again, but that is not to say they are subject to these cycles so strictly—global economic conditions and government policies do greatly influence them.

Depressions and recessions are usually the result of over-speculation, where investors’ overconfidence causes them to buy lots of shares and drive up prices, but the companies’ underperformance causes panic and a large sell-off, crashing the prices back down again (essentially a misallocation of resources). In retrospect of 1929 and 2008, there were always warning signs of such instability that today’s analysts are looking for to avoid it from happening again. However, there is less government intervention into the economy now than in 2008, which makes it less likely that there has been malinvestment or a gross misallocation of resources, leaving the potential looming correction less likely to be catastrophic.

But to believe the gambler’s fallacy that something that has not happened for a long time is “due” to happen any time now is incorrect as well. So long as the economies of other powerful nations remain healthy, the domestic policy in the US remains stable, and there are no major wars, the stock markets will have plenty of room to keep growing throughout the end of the Trump Administration.

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